How to keep your mindset positive during loan settlement?

Summary

Loan settlement is a process in which a person gets the option to settle their loan by negotiating with the bank or financial company and paying off their loan partially. This situation usually arises when a person is going through a major financial problem, such as job loss, illness, loss of business, or not being able to pay EMI due to a family crisis.

At such times, most people feel mental stress, frustration, and embarrassment. They start considering themselves unsuccessful, and their confidence starts falling. But the truth is that loan settlement can be a wise decision if it is adopted in the right way and with positive thinking.

It is most important to keep your mindset positive in this difficult period. For this, some measures can be very helpful – like not blaming yourself, taking care of mental health, having a positive attitude, taking emotional support from family and friends, and improving your financial behavior.

Introduction

When we take a loan from a bank or financial company, our aim at that time is to repay its installments on time and finish the loan. But everything in life does not always go according to plan. Many times, such situations arise – like losing a job, illness, loss in business, or facing any other financial crisis – where it becomes difficult for us to repay the loan. In such a situation, “Loan Settlement” comes as an option.

Loan settlement means that you talk to the bank or institution and find a solution to close that loan by paying the remaining amount of the loan in a smaller amount. Although this method can affect your CIBIL score if you have no other way left, it can be a practical option.

Now the question arises that how to stay mentally strong and positive in such a difficult time? During loan settlement, most people feel disappointed, embarrassed or scared. Some people consider themselves unsuccessful, while some start worrying about the future. But it is important to understand that financial challenges are a part of life, and there is a way to overcome them – provided we keep our morale up.

In today’s article, we will learn in detail how you can keep your mindset positive during the loan settlement process. Along with this, we will also talk about some useful tips and practical measures, with the help of which you will be able to maintain confidence in this difficult time. Because in the end, only a mentally strong person can turn challenges into opportunities.

What is Loan Settlement?

It is a financial process in which the bank or financial institution allows the loan taker to settle the loan by paying a lesser amount instead of paying the entire outstanding loan amount. This facility is for those who are unable to repay their loan on time due to some reason and are continuously defaulting.

Under a settlement, the bank can agree on a lump sum amount, which closes the loan. However, it is important to note that settling the loan can affect your CIBIL score, which may make it difficult for you to get a loan in the future. Therefore, it should be adopted only as a last option.

How does a Loan Settlement work?

When a person is unable to pay the EMI of his loan on time and the outstanding amount accumulates over a long period, the bank or financial institution offers the option of loan settlement. In this, the bank allows the customer to pay a discounted amount instead of the entire outstanding amount, thereby settling the loan matter.

The process of settlement comprises discussions between the bank and the customer, wherein the bank assures that the customer can’t pay the entire loan amount. Thereafter, the bank issues a single-payment offer, which is typically lower than the outstanding loan balance. On the payment of this settled amount by the customer, the bank marks the loan as “Settled”. Yet, this is not good for the CIBIL score since it is not treated as a “Complete Payment”.

Hence, loan settlement should be opted for as a matter of last resort, and if at all possible, loan repayment schemes, loan restructuring, or alternative financial solutions must be opted for so that the credit rating is not impacted.

What is the difference between a Loan Settlement and a Credit Card Loan Settlement?

Let us understand both of these in detail:

• Loan Settlement: In this, the borrower negotiates with his bank so that some part of the total loan amount can be waived off. This means that the borrower has to pay less than his original amount borrowed. This process is adopted when the borrower is unable to repay the entire loan amount and tries to settle with the bank.

• Credit Card Loan Settlement: Credit Card Loan Settlement is a process through which you can reduce your credit card dues by negotiating with the bank or credit card provider. When you are unable to pay the entire outstanding amount of your credit card and your financial situation becomes critical, the bank or credit card company agrees with you. In this, you are given a chance to end your liability by paying a certain percentage of the principal amount.

What documents are required for a Loan Settlement?

The following documents are required:

• Aadhar Card, PAN Card, Passport, or Driving License, etc.

• Salary slips, income tax returns, bank statements, etc.

• Loan Settlement letter, loan details, payment receipts, etc.

• Investment documents, property documents, insurance policies, etc.

How do I apply for a Loan Settlement online?

If you want to apply it online, then follow the easy steps given below:

Visit the bank’s website or app.

• Open the official website or mobile app of your loan provider or bank.

• Sign up if you already have an account, then log in. Otherwise, create a new account.

Check the customer support section.

• Go to the ‘Customer Support’ or ‘Contact Us’ section on the website or app.
• Here, you can find the option related to “Loan Settlement”, such as:
• Filing a loan-related complaint.
• Request form for loan settlement.

Fill out the request form for the settlement.

• Select the “Loan Settlement Request” option.
• Fill in the required details, such as:
• Your name
• Loan account number
• Email ID and mobile number
• Reason (why you want to settle, such as financial problems or reduction in income).

Upload the required documents.

• Upload documents that show your current financial situation, such as:
• Income certificate or salary slip
• Bank statement
• Any other proof that explains your problem?
• Upload all the documents by scanning them in the correct format (PDF or JPEG).

Submit and wait for the bank’s response.

• Once you have submitted the form, the bank will verify your request.

• The bank will most likely contact you within 7-10 working days. They will notify you of the settlement through email, call, or message.

Read the bank’s offer.

• The bank will make an offer to waive some portion of your pending amount. Carefully read it.

• If you accept the offer, go ahead. Otherwise, bargain further.

Make payment

• Pay the decided settlement amount from the bank in online payment mode.

• The bank will provide a payment confirmation and close your loan account.

How does a Loan Settlement affect your credit score?

The impact can be seen in the following ways:

• After a Loan Settlement, if you have a credit card or other credit line, your credit limit may be reduced as creditors feel that you may be a high-risk customer.

• If your credit score drops, it may be difficult for you to get a loan, credit card, or any other type of credit facility. This can also affect your financial stability, especially if you face a financial emergency in the future.

• When you settle for a Loan Settlement with your bank, you are not paying off the entire loan, but paying a certain amount that is less than the principal amount. This is seen negatively by the credit bureaus as it shows that you have been unable to repay your debt. As a result, your credit score may drop.

• After the Loan Settlement process, your credit report will be updated with the information that you have “settled” your loan. This entry remains in your credit history for 7 years and can be viewed negatively by lenders or other creditors, which can affect your chances of getting a loan in the future.

• Since a Loan Settlement means that you have not repaid the entire loan, when you try to get a new loan in the future, banks may look at your credit score and report and reject your application, or give you a loan at higher interest rates.

How to choose the service of Loan Settlement?

Here are some important points to consider that will help you choose the right Loan Settlement service:

Check the service provider’s credentials.

Before hiring a settlement service, make sure that the service provider you are hiring is registered and certified with financial institutions and banks. Only a reliable service provider can provide you with the right guidance and support. Checking online reviews and customer feedback is a good way to do so.

Check the service charges and other expenses.

Many service providers also charge a service fee, but make sure that the charges are not high and there are no hidden costs. Negotiate with the service provider beforehand about which services are free and which you will have to pay extra for.

Understand the settlement process.

Carefully understand the settlement process offered by the service provider. Do they understand your entire situation and provide you with a better solution to negotiate with the bank? A good provider will give you complete information about the paperwork and the process so that you understand the entire process properly.

Join our service

If you are also trapped in the debt trap and are facing a financial crisis, and want to adopt the path of Loan Settlement, then you can apply for our Loan Settlement service. We will help you settle your loan. Along with this, we provide you relief from the burden of the loan within 6 – 8 months. If you want to get more information about our service, then you can contact us.

How long does it take for a Loan Settlement to be processed?

The time taken for the settlement process also depends on various factors, such as the policies of your bank or lender, the outstanding amount, and the communication between the two of you. Usually, this process can take from 1 to 3 months.

The first action in the process of settlement is to approach the bank, where you tell your problem and payment status to the bank. Then, the bank proposes a settlement offer according to your situation. In case you agree with that proposal, you need to pay the amount to the bank within the agreed time. The bank indicates the loan as settled, and this would take some time.

The longer this entire process continues, the more it can impact your CIBIL score, so it is preferable to resolve the issue sooner.

What is the difference between Loan Settlement and Loan Closure?

Although the purpose of both is to end the loan, there are many differences between the two.

Loan Settlement:

Loan Settlement occurs when the borrower cannot pay the entire loan amount and reaches a settlement with the bank or financial institution. In this situation, the bank or institution takes a lesser loan amount from the borrower and waives off the rest of the loan. In this process, the borrower has to pay a lump sum amount, which is less than the entire loan. This usually happens when the borrower is going through a financial crisis or their repayment capacity is not being met.

• What is forgiven? The rest of the loan.

• When does it happen? When the borrower does not have the full amount to repay the loan.

• Advantages: The borrower gets a part of the loan forgiven.

• Disadvantages: The CIBIL score may be negatively affected, and it may be difficult to take a loan in the future.

Loan Closure:

Loan closure occurs when the borrower pays the entire loan amount, which includes both principal and interest. In this case, the loan is fully repaid, and the loan is closed by the bank or financial institution. When the loan is fully paid, the borrower is provided with a No Objection Certificate, which certifies that the entire loan amount has been repaid and the loan has been closed.

• Who is forgiven? There is no waiver, the entire loan amount is paid.

• When does it happen? When the borrower repays the entire amount.

• Advantages: The CIBIL score is positively affected, and there is no problem in taking loans in the future.

• Disadvantages: The entire amount has to be paid, which can sometimes be financially difficult.

Key Differences:

• In a loan settlement, the borrower gets some amount of the loan waived off, while in a loan closure, the entire amount has to be repaid.

• The process of loan settlement usually happens when the borrower does not have the money to repay the entire loan, while loan closure happens when the borrower repays the entire amount.

• Loan settlement can hurt the CIBIL score, while loan closure does not affect the score.

What are the advantages and disadvantages of Loan Settlements?

It has the following advantages and disadvantages:

Advantages

• Through Loan Settlement, the borrower gets a chance to get part of their debt waived off.

• This helps to improve his financial condition and gives him relief from a heavy financial burden.

• Although a Loan Settlement can affect the borrower’s credit score, by following the agreement on time and properly, he can gradually improve his credit score.

• Loan Settlement improves the financial condition of the borrower.

• By doing a Loan Settlement, you can manage your income and costs better and avoid a financial crisis in the future.

• The heavy burden of debt often causes mental stress. With Loan Settlement, the borrower gets relief from this stress, and he can find mental peace in his life.

Disadvantages

• After a Loan Settlement, the borrower’s credit score may be affected.

• Loan Settlements may create difficulties in taking new loans or obtaining credit cards in the future.

• Due to a Loan Settlement, the borrower’s relationship with the bank and other financial institutions may deteriorate.

• In the future, the borrower may have difficulty getting loans from these institutions.

• Through Loan Settlement, the entire loan of the borrower is not waived off. He still has to pay some amount, which can affect his financial condition.

• During a Loan Settlement, the agreement between the bank and the borrower has many conditions. The borrower is required to follow these conditions, which can limit their freedom.

How to keep your mindset positive during loan settlement?

1. Do not consider loan settlement as a failure

Many people consider loan settlement as their weakness. But it is a practical solution – especially when you are in a constant financial crisis. You are trying to get a sensible solution from the bank or institution, this shows your courage and responsibility.

Positive thinking: “I am trying to fulfill my responsibility.”

2. Do not let shame dominate you

Nobody intends to default on a loan. Circumstances become such that a person gets trapped. In such a situation, blaming yourself or feeling ashamed is wrong.

Do these exercises:

• Say one good thing to yourself every day

• Remember the good achievements made in life

3. Give priority to your mental health

It is common to have problems like stress, anxiety, and depression during loan settlement. It is very important to take care of mental health at such times.

Helpful tips:

• Do meditation and pranayama

• Talk to a counsellor if needed

4. Consider it an opportunity to improve your financial behaviour

After loan settlement, you need to understand the reasons that led you to this situation. This is the time to improve yourself financially, not to give up.

What to do?

• In the future, take loans only as per your need

• Create an emergency fund

5. Create a support system

When you are in the process of loan settlement, it is very important to seek support from family, friends or a financial counsellor. This support helps in maintaining your mental balance.

Stay in a positive environment:

• Stay with people who inspire you

• Keep a distance from negative and critical people

Conclusion

The time of loan settlement proves to be very stressful and challenging in any person’s life. When we are unable to repay the loan and come to an agreement by negotiating with the bank, then somewhere our confidence, mental peace, and future hopes start weakening. Many people start blaming themselves, feel ashamed, or consider themselves to have fallen in the eyes of society. But the truth is that financial problems can come into anyone’s life at any time. It does not make any difference to the ability, hard work, or intentions of the person.

Loan settlement should not be considered as a negative event, but an opportunity to learn and improve oneself. This is the time to look inside yourself, understand your mistakes and make a strong plan for the future. If you are able to keep yourself positive, strong and full of hope even in this situation, then understand that you have won half the battle.

We also have to understand that there are ups and downs in life. The difficulty that seems very big at one time, makes us stronger after some time. Loan settlement is not the end, it is the preparation for a new beginning. This is the turning point from where you can give a new direction to your financial life. All you need is patience, confidence and right thinking.

Frequently Asked Questions (FAQ’s)